Markets fall, oil rises on Mid East, Fed fears

MANILA, Philippines — Asian markets fell and oil prices extended gains yesterday on worries that an expected ground invasion of Gaza by Israel will spark a wider conflict in the Middle East.

Risk aversion was compounded by US Federal Reserve Chairman Jerome Powell’s comments hinting of a pause in interest rates at the bank’s next meeting, but left open the prospect of a later hike.

The benchmark Philippine Stock Exchange index (PSEi) closed 1.23 percent or 76.26 points lower at 6,142.90 yesterday, while the broader All Shares index closed 1.08 percent or 36.37 points down at 3,329.42.

“Philippine shares ended the week in the red as investors turned more cautious following Fitch Group’s statement that inflation will likely stay elevated for an extended period,” Luis Limlingan of Regina Capital said.

“Additionally, the recent statement by Fed Chair Powell weighed on the local and global markets. He said inflation remains too high and lower economic growth will likely be needed to bring it down. Powell also said he doesn’t think rates are too high now. Gold prices edged higher for the third straight session as the intensifying conflict in the Middle East spurred investors’ demand to go for the safe-haven metal,” he said.

Philstocks Financial’s Claire Alviar echoed Limlingan’s sentiments, noting that the local bourse dipped amid worries over the statement of Powell, similar to declines in other Asian markets.

“Investors reacted negatively on the statement leading to the increase in 10-year Treasury yields which weighed further on the sentiment in the market,” she said.

Traders are keeping a fearful eye on developments in the Middle East. The likelihood of a Middle East war has sent oil prices surging and both contracts extended the week’s gains yesterday.

“The risk premium in crude has shot up again,” said Vandana Hari of Vanda Insights. 

“As long as the Israel-Hamas tensions run high, crude will remain susceptible to further spikes on signs of an escalation.”

Traders are also wrestling with the prospect that US interest rates will remain elevated for some time as the Fed battles to contain inflation.